We have upgraded our recommendation for Tractor Supply Co. (TSCO) to Outperform based on the company’s healthy operating results in the last quarter and management’s upbeat guidance.
During fourth quarter 2009, net income of the company increased 54.8% to $38.3 million from $24.7 million in the year-earlier quarter, and earnings per share increased 55.2% to $1.04 from $0.67. For fiscal 2009, net income of Tractor Supply increased 40.9% to $115.5 million from $81.9 million in the previous fiscal, and earnings per share increased 43.8% to $3.15 from $2.19.
The better-than-expected earnings were primarily due to the increase in net sales and reduction in inventory levels per store. Net sales of Tractor Supply recorded a growth of 7.9% year over year during the quarter to $862.5 million primarily driven by solid sales in core consumable categories, including animal and pet-related products, as well as key seasonal products. For fiscal 2009, net sales increased 6.6% to $3.21 billion.
Tractor Supply has successfully tweaked merchandise assortment across its stores in line with the prolonged recession. The company has enhanced the proportion of less discretionary items such as, animal and pet-related products, while reducing shelf space for certain big-ticket merchandise such as outdoor power equipment.
The company has also recently initiated an inventory management strategy under which it is focusing on the top 20 categories based on customer demand and the 250 most important stock-keeping-units within those categories. This has enabled Tractor Supply to keep a tight control over per-store inventory levels.
With improved quarterly and fiscal 2009 results, Tractor Supply expects fiscal 2010 sales in the range of $3.42 billion and $3.20 billion, and earnings in the range of $3.30 and $3.42 per share.
Read the full analyst report on “TSCO”
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